Financial firms including Cantor Fitzgerald and Goldman Sachs are discussing the trading possibilities around bitcoin, which has a market value larger in size than petroleum giant BP. JPMorgan Chase Chairman Jamie Dimon, investors including Warren Buffett and Bill Miller, and even the panel at CNBC’s “Squawk Box” have weighed in.
Bitcoin is still a mystery to many of us, probably because we can’t eat, see or touch it. Here’s a guide to some of bitcoin’s ins and outs.
What is bitcoin?
It is an electronic form of currency that has no physical presence anywhere in the world. There are no physical “coins” like dimes, nickels and quarters. Bitcoin, like other cryptocurrencies, exists on the Internet.
“It’s all based on a technology called block-chain that has a lot of people excited,” said Daniel P. Wiener, chief executive of Adviser Investments, a Newton, Mass.-based firm that manages more than $5 billion in assets.
Simple. Supply and demand. People are buying up bitcoin, driving up the price of the 16.7 million coins in circulation to a total value of $189 billion as of midday Monday.
The floor value of bitcoin is zero. It does not pay interest. There is no asset value attached to it except what the market gives it. It has no central bank supporting it.
Many urge caution, despite its impressive price increase in 2017. Bitcoin is a highly speculative, experimental new type of digital asset. Therefore, there is substantial uncertainty around its future evolution and potential.
“Individuals should not invest any capital that they cannot afford to lose tomorrow,” Catalini said.
“It’s not for the timid,” Blaskey said. “But neither is anything. Great rewards sometimes involve risk.”
Bitcoin can be used to buy merchandise anonymously, without a middleman and involving lower or no fees and no banks. It has a use as a currency for those very few businesses that accept it. Websites such as CoinDesk and 99Bitcoins list the names of businesses that accept bitcoin as payment.
It’s not easy because the currency fluctuates wildly.
There’s also a dark side to bitcoin, according to Cornell Law School professor Robert Hockett, a former adviser to the Federal Reserve Bank of New York and the International Monetary Fund.
“People who want their transactions to be difficult to trace — drug dealers, money launderers, hipster anarchists, smugglers and terrorists — like the secrecy that cryptocurrencies facilitate,” Hockett said. ”People should be cautious. The FBI, Homeland Security and other law-enforcement agencies will not continue to watch crime-enabling payments technologies with indifference.”
On bitcoin exchanges. There are lots of them. BTCChina. Bitstamp. Bitfinex. People can buy and sell using various currencies. Bitcoins are stored in digital wallets that exist in the cloud or on people’s computers.